The cost of carving up Royal Bank of Scotland into 'good' and 'bad' banks would likely exceed any benefit gained from the process, ratings agency Fitch has claimed.

Fitch said splitting out the more toxic assets held by RBS into a state controlled 'bad' bank, could see the state take on more debt as a result.

The ratings agency said the benefits to be gained by splitting the bank are being reduced as a result of the bank's “increasingly robust” balance sheet.

Fitch believes a break-up is “unlikely”, which it put down to “obstacles and uncertainties involved in transferring some assets to a state-run bad bank”.

However, the ratings agency has not included a cost estimate in its findings, but claims any break-up would lead to a “haircut” for junior bond holders, which Fitch says could affect the value of the government's stake in the bank.

The Treasury is reported to be considering reinvesting £1.5 billion it would get from the sale of its special dividend rights linked to the RBS bailout, back into RBS by way of a share buy, which could see the taxpayer's stake in the bank rise further.

Investment bank Rothchild is currently conducting a review of the logistics of a break-up of RBS and is expected to publish its findings in the autumn.

The Rothchild review was ordered in response to recommendations outlined in the cross-party Parliamentary Commission on Banking Standards, which published its findings in June.

Its recommendations included an urgent review of RBS to look at alternatives to selling off the taxpayers stake.

The Commission was of the view allowing RBS to park its non-performing assets in a 'bad bank' would see the 'good bank' increase retail and corporate lending and speed up the re-privatisation of the government's state in the bank.

Last October, RBS withdrew from the government's Asset Protection Scheme, where it had sheltered £282 billion of its most toxic assets at a cost of £2.5 billion in premiums since 2009.

The move saw the bank take more than £100 billion of assets back onto its balance sheet.

Business Secretary Vince Cable stated in an interview last weekend it was “pretty unrealistic” the government's 81 per cent stake in RBS – which cost the taxpayer £45.5 billion - would be sold off within the next five years.

Cable said: “I don't think it would be sensible for the government to set a rigid timetable, but given where we start from I think it is pretty unrealistic to think of RBS going back into private ownership this Parliament or probably within five years.”

RBS chairman Sir Philip Hampton, commenting on the bank's first-quarter results posted in May, said he hoped the bank would complete its recovery process “in about a year or so's time” adding a share prospectus could be drawn up as early as “the middle of 2014”.